Hapag-Lloyd: Bunker Prices High, Freight Rates Clearly Too Low

Behrendt called rate drops "totally incomprehensible"

Container shipping line Hapag-Lloyd AG (Hapag-Lloyd) reports that cost-cutting efforts helped it achieve a profit of €16.6 million ($22.3 million) in the third quarter of 2013 as bunker prices, which despite falling, "remain very high in conjunction with freight rates that are clearly too low."

"The freight rate developments in the third quarter, the peak season for the liner shipping industry, were very disappointing," said Michael Behrendt, chairman of the executive board.

"But as in the second quarter, we were able to offset the adverse impact that this had on earnings with additional cost reductions."

The company reported paying an average of $603 per metric tonne (pmt) for bunkers in the third quarter, down from $634 pmt for the same period last year, and it said a major cost-cutting initiative helped reduce its expenses over the first nine months of the year.

Hapag-Lloyd said rate increases announced in the third quarter "could not be achieved sufficiently in the market," and average freight rate for the first nine months of the year fell 4.3 percent year-over-year to $1,506 per twenty-foot equivalent unit (TEU).

"The irrational behaviour in the industry, which once again caused rates to drop drastically in October, is totally incomprehensible," Behrendt said.

The company said it has announced rate increases for some trades in November and December.

Maersk Line leaders said earlier this fall that it faces "unsustainable market rates," driven by overcapacity in the market and price cuts by struggling lines.